The First 100 Days: Investors Still Interested in Commercial Real Estate

With strong growth in the commercial real estate market since 2010 and a new presidential administration vowing to revisit regulations such as Dodd-Frank, CRE investors have been feeling positive. As we approach the end of the administration’s first one hundred days in office, CRE investors seem to have plenty to be happy about, and this optimism has been reflected in rising prices for CRE projects.

But while the majority of investors continue to remain bullish on CRE, a minority view is beginning to emerge within the community. Retail locations have been closing at a rapid clip as consumer behavior continues to migrate to online shopping; as such, many shopping malls are confronting the possibility of losing their most important anchor clients, as department store sales have plummeted and many retailers have announced plans to close even more locations over the next several years.

This has driven the number of hedge funds willing to short CRE prices up steadily; shorts on CRE properties jumped by 50% in 2016 alone. Deutsche Bank and Morgan Stanley, among other institutions, are betting that CRE is currently over-valued and ripe for a big short. Real estate magnate Sam Zell, chairman of Equity Group Investments, has even gone so far as to sell off 124 of the 156 real estate assets he had on-hand in the last two years.

So far, most CRE investors have taken these developments in stride, pushing CRE prices toward historic highs on optimism that a Trump administration will continue to prove good for the sector. The president’s efforts to reduce, revise, or eliminate safeguards established after the last financial crisis may provide the easy money needed to push CRE investments to even greater heights.

But that optimism is already starting to get pushback from some players. While investors are still interested in commercial real estate, that attitude may begin to change in the coming months.